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Loan Procedure for Individual 401ks

How to Correctly Borrow From Your 401k

Scrabble LoanGet Your QRP Loan Kit

The borrowing procedure for your Individual 401(k) is detailed in the QRP Kit, which can be found in the packet that we provide you.  This section provides detailed descriptions of how to handle the loan and how to pay it back.

The first thing to do is fill out the Credit Application.  In the Instructions page of the Advance Kit, it tells you that your plan administrator or trustee must review and approve the loan application.  If Sunwest Trust is your trustee/plan administrator, fax or email the form to us to review.  If you are your own trustee, please review the rules on page 2 of the instructions very carefully to make sure that you remain within the guidelines of your plan.

You don’t need to qualify through a credit check, and you don’t have to tell anybody why you are borrowing the money. It’s true that you pay interest to yourself and that 9% rate sure looks attractive to receive the interest in your 401(k) account.

OK – Now my loan has been accepted

Once your application has been accepted, you will need to fill out the borrower Agreement.  By signing this document, you agree to the terms of the loan.  Please review this document and make sure that you understand everything.  Once both of these documents have been filled out, you may receive the extension.  If Sunwest is your plan administrator, we will mail you a check.

If you are your own trustee, you may cut a check to yourself from your 401(k) checking account.

Stay within the guidelines of your loan agreement

Make sure that you abide by all the terms of the agreed plan or else you may be deemed in default.  If your extension is deemed in default, the entire amount will be considered a distribution, for which you will be taxed and possibly penalized.

If you have any questions, be sure to speak with your CPA or tax professional.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.